BHP reveals plans in resources sector

Press, 29 June 1988, Page 34

BHP reveals plans in resources sector

By

JOHN CALLAN,

of NZPA in Sydney

Cutting costs and expanding its markets and shareholder base spearhead Broken Hill Proprietary Company’s (BHP) plan to make the company one of the world’s leading oil and mineral corporations.

The chief executive of Australia’s biggest company, Mr Brian Loton, and senior executives told a briefing of journalists and brokers this week that expansion would continue in the oil, gas, and mineral divisions. The steel division, which had a difficult year, would face increasing pressure to boost profit to justify recent large investments. There were no plans at present to raise funds from shareholders to help reduce debt. Although the

company was in an expansionary mood, it had no definite overseas acquisitions planned, Mr Loton said. A concerted attack on cost structures and greater effort from staff to lift productivity would be of more benefit than worrying about tariffs and the exchange rate.

But a 1c movement in the Australian dollar against the United States dollar translated into a short term impact of

about sAustlB million on BHP’s net profit.

If the Australian dollar continued at its present levels for the rest of 198889, against its US72c rate last year, BHP’s earnings could suffer by more than sAustl6o million, he said.

However, Mr Loton stopped short of predicting next year’s annual profit, saying “the volatility of exchange rates make it a futile exercise.”

In the past decade BHP’s non-Australian assets have grown to make up 22 per cent of the company’s' capital value of sAustl7.s billion ($NZ20.48).

In 1986-87 BHP accounted for 36 per cent of Australian iron ore production, nearly all the manganese ore, 40 per cent of crude oil output, 19 per cent of black coal, and 18 per cent of the natural gas.

Asset sales came to sAustl.3B for the last 12 months and would continue as BHP sheds noncore and non-performing sectors.

The unveiling of the strategy for the next five years came after last Friday’s announcement of a 17 per cent increase in net profit to sAust7B.9M in the year to May 31.

BHPs invested sAust2B in steel during the last five years — about 10 per

cent of all new private capital spending in Australian manufacturing since 1983. With annual sales of sAust4.4B, BHP Steel International was now the 12th largest Australian company in terms of revenue and the 16th largest steel producer in the western world, said a BHP Steel’s chief executive, Mr John Prescott.

Although profit had been disappointing, the aim was to achieve a net return of 15 per cent on shareholders’ funds.

World leaders in the steel industry were approaching an output of 600 tonnes per man-year and BHP’s target of 350 tonnes per man-year was still well short of this figure, he said.

Mr Loton said there would be significant reductions in the steel division’s labour force.

Among the company’s other divisions, BHP Petroleum aims to become one of the world’s top 10 oil companies in terms of profitability and shareholder returns. BHP Petroleum accounts for more than half the group’s total profit and ranks 12th in the world in reserves and in the top 20 in terms of earnings. BHP Petroleum’s chief executive, Mr Peter Willcox, outlined a

strategy which included further exploration activities to maintain reserves and increasing profit from declining and mature fields.

The life of the big Bass Strait fields is limited and the company expects an increasing proportion of production will come from fields in the United States, the North Sea and the Timor Sea.

The petroleum division, with about 1000 staff, was a relatively small employer and was still short of skilled people. Significant growth in staff numbers could be expected as BHP started producing oil in some extremely difficult locations in geographical and technical terms, Mr Willcox said.

The North-West shelf project would be exporting its first quantities of LNG (liquefied natural gas) by mid-1989 and would build to be a major component of BHP’s revenue by the mid-19905.

The project’s reserves are estimated at 10,000 billion cubic feet of gas.

An important part of BHP’s strategy is to increase development of fields in the Americas and the Timor Sea to fill production gaps until the North-West shelf reaches full output.